NCPA - National Center for Policy Analysis

Quick, Spend The Surplus Before Taxpayers Grab It

August 5, 1999

That is essentially the view of the tax-and-spend crowd in Washington, economists warn. While Federal Reserve Chairman Alan Greenspan has come down on the side of delaying a tax cut until the economy needs it, he has also made it clear that a major increase in outlays "is the worst of all possible worlds from a fiscal-policy point of view, and, under all conditions, should be avoided."

He went on to add in recent testimony that he has "great sympathy for those who wish to cut taxes now to preempt that process, and indeed, if it turns out they are right, then I would say that moving on the tax front makes good sense to me."

But former Federal Reserve governor Lawrence B. Lindsey warns that spending more is exactly what President Clinton has in mind.

  • Clinton calls for a 10 year spending increase of $1.032 trillion -- offset by a further $95 billion increase in taxes.
  • Thus he uses $937 billion of the projected surplus to grow government.
  • By contrast, the congressional budget resolution calls for cutting taxes by $778 billion and spending by $59 billion, reserving $218 billion for deficit reduction -- more than the president's.
  • In the past four fiscal years, inflation-adjusted domestic spending has actually increased $74 billion -- although partially offset by a $34 billion cut in real defense spending.

At the same time, real tax receipts have soared $312 billion.

So this recent history strongly suggests that with a tax-cut delay, politicians will fast find a way to spend the surplus before it can be returned to taxpayers.

Source: Lawrence B. Lindsey (American Enterprise Institute), "Whose Surplus Is It, Anyway?" Wall Street Journal, August 5, 1999.

 

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